Group Health Insurance For Teachers – At a recent school board meeting in Los Angeles, the budget director put up a slide with a dire warning. Los Angeles Unified, the second largest school district in the country, is on pace to spend more than half of its annual budget on retirement and health care costs by the year 2031. Then, it is projected to spend 22 ,4 percent of its costs. budget on pensions and 28.4 on health benefits for current and older workers.
The cost of health care is rising rapidly in all parts of our economy, but the pressures in the public sector, and especially in public education, are different. Like many school districts, where salaries are low compared to private sector peers, the Los Angeles Unified School District (LAUSD) has chosen to compensate by providing its teachers with generous health benefits. In fact, the district extends medical, dental and vision coverage not only to current employees, but also to retirees and their spouses, who pay no premiums or deductibles and also qualify for whole life benefits . Therefore, LAUSD’s projected health care spending includes 38,000 former workers and spouses, each of whom is estimated to cost up to $291,000 during their retirement years.
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LAUSD is an outlier in terms of how generous these benefits are, and the district has begun scaling back who is eligible to receive them over the past decade. But this illustrates a little-understood way that public employees like teachers are increasingly divergent from their private-sector peers: They are far more likely to receive health care benefits.
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They leave their jobs. Nationwide, the estimated liability for post-retirement health care benefits for public employees is $692 billion.
Health care for retired teachers is perhaps the last arcane issue in the education sector. There are no funders investing in solutions to this issue, there are few reliable sources of data, and until recently, states and districts have not even calculated how much they have promised in future benefits, let alone begin to save to pay for those promises. However, in the past decade, new financial accounting rules have forced states and districts to begin recognizing and publicly representing those costs, which is likely to put even more pressure on teacher salaries and other school expenses. These trends are contributing to broader teacher unrest, and have been factors in recent teacher strikes in states like Colorado, Kentucky, Oklahoma and West Virginia.
Rising costs are poised to raise the profile of these post-employment health benefits. And the debate that follows is sure to raise broader questions about what districts owe their retirees and whether they can make good on written promises, or whether there are reforms that could balance worker protections with responsible budgeting practices. Furthermore, the problem with retiree health benefits extends beyond their cost or divergence from the private sector; There are also reasons to doubt whether these benefits help schools attract and retain high-quality workers. In this piece, I’ll review the history and landscape of retiree health benefits, explain why those plans aren’t having the desired effects on the teacher workforce, and explore options for reform. .
The first retiree health benefit plans began in the 1940s as a way to attract and retain workers in the private and public sectors, competing with each other and offering similar health benefits. For decades, employers have been able to offer retiree health benefits as part of employee compensation packages without fully accounting for their cost.
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That began to change in the private sector in the mid-1980s, when new accounting rules forced companies to include long-term obligations of post-employment health benefits in their balance sheets. As workers aged into the plans and began to collect benefits, companies were required to accurately account for the projected cost of future promises and disclose those liabilities, rather than simply reporting the annual costs of paying for that year’s benefits. . The companies quickly decided that it made more sense to close the plans than to appear less profitable. The share of large and medium-sized companies offering health benefits for retirees fell from 45 percent in 1988 to 24 percent in 2017, data from the Bureau of Labor Statistics show (see Figure 1 ). Smaller companies are even less likely to offer such benefits, and nationally, only 15 percent of private sector workers have access to employer-provided retiree health benefits.
For public sector workers such as teachers, the numbers remain much higher. In 2017, 69 percent of public school teachers were employed in states or districts that offered retiree health benefits to workers under 65, and 61 percent of teachers worked for an employer that it offers health benefits even after age 65, when all Americans become eligible. for Medicare. However, a similar change in accounting rules for state and local agencies was adopted in 2008, forcing states and local governments to publicly report long-term liabilities they had long ignored. The question is, what are states and districts doing in response?
We can find clues based on the size of the liabilities. As a point of comparison, readers may be familiar with unfunded pension liabilities in the public sector. As of 2016, the gap between the funds and obligations of state pension systems had grown to $1.4 trillion nationwide, including about $500 billion for education workers. But these figures do not include the cost of health care for retirees, and while we do not have the necessary data to determine a firm estimate, we can have a sense of the scope of the financial challenges ahead. According to the Pew Charitable Trusts, 35 states offer health benefits for former public employees in retirement, and have accumulated a total unfunded liability of $692 billion. About one-third of all public employees in the United States are teachers and other education workers, so it is reasonable to estimate that unfunded health care promises amount to about one-third of the total liability, or about $231 billions just for teachers and other public. education employees. Some school districts, like LAUSD, also offer their own benefits, either on top of the state plan or instead of one.
While the unfunded promises for retiree health care are only half of what they are for pensions in terms of total dollar amounts, health benefits are in much worse shape than the states of money they have saved for the future. Nationwide, public sector pension plans are 65 percent funded, meaning states have saved 65 cents for every dollar promised in future benefits. This is not good, and it is the main reason that pension contributions have grown in recent years, putting pressure on state budgets.
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Health care for retirees is also on shakier ground. Until the last few years, the states were not required to calculate how much they are worth the health promise of retirees, and few put something aside to pay for them in the future. Today, 15 states, including big ones like Florida, New Jersey and New York, have
Set aside to pay retiree health care obligations. Nationwide, projected future health care costs for retirees are funded at 7 percent, with other large states posting even lower ratios: California has a funded ratio of 0.2 percent, Connecticut is at 1.0, Pennsylvania at 1.6 and Texas at 1.2 percent (see. Figure 2). Simply put, there is no money saved to cover the 93 percent of expected costs for retiree health benefits.
That can make these benefits especially vulnerable to budget pressure. Unlike pensions, which are covered by legal provisions that limit the changes states can make to existing workers and retirees, retiree health benefits have no such protections. They can be in any budget cut block at any time. Pensions may be where most of the long-term cost pressures are, but policymakers may prefer reforming retiree health benefits for more immediate cost savings.
These factors create a precarious situation, and the most obvious solutions are to adopt abrupt benefit cuts or increase contributions. States and districts have been busy in recent years limiting eligibility only to long-term employees, and it is likely that this trend will accelerate. If states also increase required contributions, this will lower take-home pay for all teachers. Combined, these two trends would require all teachers to pay for a benefit, few of them will qualify for when they reach retirement age.
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Rather than going down this road, state leaders should find compromise solutions now that balance rising cost pressures with worker protections. But before turning to potential solutions, it’s also worth considering how the plans influence teachers’ decisions about retention and retirement.
Although retiree health benefits have historically been justified on the grounds of enhancing teacher recruitment and retention, there are reasons to doubt how effective they are in accomplishing these goals. To my knowledge, there have been no studies examining whether post-employment health care benefits affect initial teacher recruitment or retention. But the research base on pensions is illustrative. In a recent paper, Matthew Kraft, Eric Brunner, Shaun Dougherty and David Schwegman found no evidence that increasing employee contribution rates toward pension plans hurt teacher recruitment efforts. That is, incoming teachers either did not know about the cost increase, or the increase was not enough to change teachers’ behavior.